Bankruptcy wipes your debts and gets creditors off your back. The relief can be enormous.

But as well as serious financial restrictions which can come as a consequence of bankruptcy, there can be personal repercussions. "Some friends became a bit distant, and some crossed the street to avoid me," one bankrupt reported.

Get professional advice and try all alternatives first:

• Sell assets. A garage sale for small items, newspaper advertising, internet or auctions for higher-value goods.
• Reduce your financial commitments. Cancel the pay TV package. If you've recently signed up for an expensive hire purchase item, ask the retailer to take it back.
• Budget to free up cash.
• Get your creditors' agreement for a creditors' pool. Set up an affordable payment structure. To avoid problems, the creditors should agree on who will supervise the pool. This should be a reliable independent person such as a business mentor.
• Restructure your debts. Can you roll higher interest debts into your mortgage?
• Ask creditors if they will accept a portion of the debt as final settlement.
• If you owe less than $40,000 you can apply to the Official Assignee for a summary instalment order. This lets you pay your debts in stages without the threat of further legal action.
• If you have no realisable assets you may be eligible for the "no asset procedure". Check with the Official Assignee.
• Trade your way through problems if professional advice determines they are just a short-term squeeze.

No Asset Procedure

The No Asset Procedure is an alternative to bankruptcy which may be available if you have total debt that is not more than $40,000. It's designed to give people stuck in the debt trap a fresh start. Unlike bankruptcy which normally lasts 3 years, you will be discharged from the No Asset Procedure after 12 months. Creditors will be prevented from taking steps against you to enforce debt that is included in the procedure.

To be eligible for the procedure you will have:

• No realisable assets (excluding cash up to $1000, motor vehicle up to $5000, tools of trade and personal and household effects).
• Total debts (excluding student loans) of not less than $1000 and not more than $40,000.
• Completed a means test showing you have no means of repaying any amount towards your debt.

It's important to note the Official Assignee can refuse your application if you have incurred debts knowing you had no means to pay them.

Consequences of entering the procedure
Your name will be published on the insolvency register for 4 years. You will be able to apply for credit after one year, however your credit history will be compromised. This may make it difficult to obtain credit from a bank or other lending institution.

How to apply
Applications are made to the Official Assignee, either electronically or manually.